Federal Register / Vol. 63, No. 133 / Monday, July 13, 1998 /Rules and Regulations 37659

(3) The customer’s ability to

understand the economic features of the

security involved;

(4) The customer’s ability to

independently evaluate how market

developments would affect the security;

and

(5) The complexity of the security or

securities involved.

(i) A determination that a customer is

making independent investment

decisions will depend on the nature of

the relationship that exists between the

bank and the customer. Relevant

considerations could include:

(1) Any written or oral understanding

that exists between the bank and the

customer regarding the nature of the

relationship between the bank and the

customer and the services to be

rendered by the bank;

(2) The presence or absence of a

pattern of acceptance of the bank’s

recommendations;

(3) The use by the customer of ideas,

suggestions, market views and

information obtained from other

government securities brokers or dealers

or market professionals, particularly

those relating to the same type of

securities; and

(4) The extent to which the bank has

received from the customer current

comprehensive portfolio information in

connection with discussing

recommended transactions or has not

been provided important information

regarding its portfolio or investment

objectives.

(j) Banks are reminded that these

factors are merely guidelines that will

be utilized to determine whether a bank

has fulfilled its suitability obligation

with respect to a specific institutional

customer transaction and that the

inclusion or absence of any of these

factors is not dispositive of the

determination of suitability. Such a

determination can only be made on a

case-by-case basis taking into

consideration all the facts and

circumstances of a particular bank/

customer relationship, assessed in the

context of a particular transaction.

(k) For purposes of the interpretation

in this section, an institutional customer

shall be any entity other than a natural

person. In determining the applicability

of the interpretation in this section to an

institutional customer, the Board will

consider the dollar value of the

securities that the institutional customer

has in its portfolio and/or under

management. While the interpretation

in this section is potentially applicable

to any institutional customer, the

guidance contained in this section is

more appropriately applied to an

institutional customer with at least $10

million invested in securities in the

aggregate in its portfolio and/or under

management.

PART 250—MISCELLANEOUS

INTERPRETATIONS

1. The authority citation for part 250

continues to read as follows:

Authority: 12 U.S.C. 78, 248(i) and 371c(e).

§§ 250.120 through 250.123, 250.140,

250.161, 250.162 [Removed]

2. Sections 250.120, 250.121, 250.122,

250.123, 250.140, 250.161, 250.162 are

removed.

§§ 250.300 through 250.302 [Removed]

3. The undesignated center heading

preceding § 250.300 and §§ 250.300

through 250.302 are removed.

By order of the Board of Governors of the

Federal Reserve System, July 6, 1998

Jennifer J. Johnson,

Secretary of the Board.

[FR Doc. 98–18274 Filed 7–10–98; 8:45 am]

BILLING CODE 6210–01–P

FEDERAL RESERVE SYSTEM

12 CFR Part 209

[Regulation I; Docket No. R–0966]

Issue and Cancellation of Federal

Reserve Bank Capital Stock

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Final rule.

SUMMARY: The Board of Governors of the

Federal Reserve System is amending its

Regulation I regarding the issue and

cancellation of Federal Reserve Bank

Capital Stock in order to reduce

regulatory burden and simplify and

update requirements. The amendments

modernize Regulation I in accordance

with the Board’s policy of regular

review of its regulations and the Board’s

review of its regulations pursuant to

section 303 of the Riegle Community

Development and Regulatory

Improvement Act of 1994.

EFFECTIVE DATE: October 1, 1998.

FOR FURTHER INFORMATION CONTACT: Rick

Heyke, Staff Attorney (202/452–3688),

Legal Division, Board of Governors; Bill

Pullen, Accountant (202/736–1947,

Division of Reserve Bank Operations

and Payment Systems, Board of

Governors; or Anthony Scafide,

Manager (215/574–6546), Wholesale

Payments Division, Federal Reserve

Bank of Philadelphia. For the hearing

impaired only, Telecommunications

Device for the Deaf (TDD), Diane Jenkins

Thompson (202/452–3544).

SUPPLEMENTARY INFORMATION:

Background

As part of its policy of regular review

of its regulations, and consistent with

section 303 of the Riegle Community

Development and Regulatory

Improvement Act of 1994 (Riegle Act),

the Board of Governors of the Federal

Reserve System (Board) is amending its

Regulation I regarding issue and

cancellation of Federal Reserve Bank

capital stock (12 CFR part 209). Section

303 of the Riegle Act requires each

federal banking agency to review and

streamline its regulations and written

policies to improve efficiency, reduce

unnecessary costs, and remove

inconsistencies and outmoded and

duplicative requirements. The

amendments are designed to reduce

regulatory burden and simplify and

update the Regulation.

The Board published a notice of

proposed rulemaking in the Federal

Register on March 31, 1997 (62 FR

15297) that solicited comments on the

proposed amendments described below.

In general, the amendments simplified,

modernized, and condensed the

Regulation, and reflected the

replacement of share certificates by a

book-entry system. The amendments

also codified Board and staff

interpretations. In addition, the

amendments deleted the many

references to specific forms. Many of

these references are incorrect because

the forms no longer exist or no longer

have the same identification numbers.

Finally, the proposal sought comment

on the method of computing accrued

dividends on Reserve Bank capital stock

and on deferring changes in Reserve

Bank capital stock positions to reflect

small changes in member bank capital

stock and surplus.

The Board received nine comments

on its proposal, five from Federal

Reserve Banks, three from banking

organizations, and one from a trade

association. The comments were

generally supportive of the proposal

overall, and especially of the shift to

book entry electronic recordkeeping.

Final Rule

The Board is adopting the revised

Regulation I substantially as proposed.

In addition, in response to comments,

the final Regulation makes clear that

Reserve Bank stock is issued to member

banks in organization as of their

opening for business and not before,

incorporates the Board’s final rule on

relocation of member banks and makes

appropriate adjustments to the section

on Cancellation of Reserve Bank Stock,

carries over adjustments in Reserve
37660 Federal Register / Vol. 63, No. 133 / Monday, July 13, 1998 /Rules and Regulations

1The Reserve Bank will pay for the stock on the

effective date unless the former member bank has

not made timely application as required under

subsection (a).

Bank stock positions that do not exceed

the lesser of 15 percent or 100 shares

until the year-end report of condition,

clarifies the treatment of gains or losses

on securities available for sale and

foreign exchange translation

adjustments, and adopts a 360-day year

of 30-day months for dividend accruals.

An section-by-section discussion

follows.

Banks Desiring to Become Member

Banks

Proposed § 209.2 combined and

condensed existing §§ 209.1 and 209.2

regarding national and state bank

applications. Existing § 209.1 also

specified the amount of Reserve Bank

stock for which national banks should

apply, but the proposal combined all

references to amount in proposed

§ 209.4 and deleted repetitive

explanations. The Board received no

specific comments on subsection (a) as

proposed and the final rule adopts the

subsection as proposed.

Subsection (b) specified procedures

for issuance of Reserve Bank stock. The

proposal provided for issuance of such

stock when all applicable requirements

had been complied with in the case of

a state bank approved for membership.

One commenter suggested that the

Regulation clarify that the issuance of

the stock to a state member bank may

not precede its opening for business.

National banks in organization are

issued stock in their Reserve Banks as

of the date upon which they open for

business. The Board is modifying

§ 209.2(b) in the final rule to require that

in the case of a state member bank in

organization, assuming all applicable

requirements have been complied with,

its Reserve Bank shares shall likewise be

issued as of the date it opens for

business.

Proposed § 209.2 also included a

subsection (c) that would specify the

Reserve Bank of which a bank may

become a member and that was the

subject of a separate request for

comment. See 62 FR 11117 (March 11,

1997). That rule was separately

approved by the Board and is

incorporated herein. See 62 FR 34613

(June 27, 1997).

Cessation of Membership

Proposed § 209.3 combined and

simplified existing §§ 209.5(b) (merger

of a member bank into a state

nonmember bank), 209.6 (conversion of

a national bank into a state nonmember

bank), 209.7 (insolvency), 209.8

(voluntary liquidation), 209.9(b)

(national bank in the hands of a

conservator to be liquidated), 209.10

(closed state member banks not in

liquidation), 209.11 (voluntary

withdrawal from membership by state

bank), and 209.12 (involuntary

termination of state bank membership).

The existing Regulation distinguishes

between insolvency and voluntary

liquidation (where the bank or receiver

was required to file for cancellation of

Reserve Bank stock within three

months), other cessation of business by

state member banks (where failure by

the bank to file for cancellation within

60 days commenced a process whereby

the Board might order termination of

membership), and other cases such as

voluntary withdrawal, merger into a

nonmember bank, or conversion of a

national bank into a nonmember state

bank (where the regulation imposed no

specific timing requirement for filing an

application for cancellation of Reserve

Bank stock). Proposed 209.3(a) provided

instead that all such banks (or receivers)

shall file promptly for cancellation of

Reserve Bank stock, failing which the

Board may order the membership of the

bank terminated under 209.3(b).

The Federal Reserve Act (the Act)

provides in section 6(2) (12 U.S.C. 288)

that the Comptroller of the Currency

may appoint a receiver for a national

bank that has discontinued banking

operations for 60 days but has not gone

into liquidation, if the Comptroller

deems it advisable. The existing

regulation includes in § 209.9(a) a

provision for the appropriate Reserve

Bank to notify the Office of the

Comptroller of the Currency in the event

a national bank has ceased business for

60 days but has not gone into

liquidation, together with a statement of

reasons why a receiver should be

appointed. The proposal omitted this

provision. The appropriate procedures

for communication among the Board,

the Reserve Bank, and the Comptroller’s

office in such a case would depend on

the facts and circumstances of the

particular case.

Subsection (c) of the proposal sets

forth the effective date of cancellation in

whole of Reserve Bank stock held by

member banks. One commenter

inquired about dividend accruals

between the effective date of

cancellation and the date of actual

cancellation. While this question does

not arise in the case of a member bank

all of whose Reserve Bank shares are

maintained in an electronic register at

the Reserve Bank, it could arise in the

case of a member bank holding

certificates. In that case, dividends cease

to accrue on the effective date of

cancellation.1

Subsection (d) of the proposal

condensed and simplified the existing

procedures for dealing with mergers of

member banks. In light of the adoption

of the change in location provisions

discussed above and included in this

final rule at § 209.2(c), and because

changes in location and mergers of

member banks located in different

Federal Reserve Districts involve similar

procedures, the final rule modifies the

proposal to distinguish between mergers

of member banks in the same District,

discussed in paragraph (d)(1), and

changes in location and mergers of

member banks located in different

districts, discussed in paragraph (d)(2).

In the former case, the Reserve Bank

cancels the shares of the nonsurviving

bank and credits the appropriate

number of shares to the surviving bank.

In the latter case, the Reserve Bank

where the nonsurviving bank is located

(or from whose District the member

bank’s location is being changed)

cancels the shares of the nonsurviving

(or relocating) bank and transfers the

amount paid in for those shares to the

Reserve Bank where the surviving bank

is located (or to whose District the

member bank’s location is being

changed), which credits the appropriate

number of shares to the surviving (or

relocated) bank.

Subsection (e) of the proposal

required six months notice of voluntary

withdrawal unless waived by the Board.

A Reserve Bank suggested the period

should be shortened to three months.

The Act permits withdrawal by state

member banks upon six months written

notice but authorizes the Board to waive

both the notice requirement and a

related requirement that no Reserve

Bank cancel more than 25 percent of its

stock in a calendar year. The Regulation

tracks the statutory language and the

Board believes that the waiver

mechanism should continue to prevent

any hardship for withdrawing banks

without creating the possibility of

instability in Reserve Bank capital stock.

The Board received no other specific

comments on § 209.3. Other than the

procedural changes to reflect interDistrict mergers and relocations and

conforming changes for intra-District

mergers, the final rule adopts proposed

§ 209.3 as proposed.

Amounts and Payments; Frequency of

Adjustment

Proposed § 209.4(a) combined in one

section the requirement for amount of

total subscription for Reserve Bank

stock (other than for a mutual savings
Federal Register / Vol. 63, No. 133 / Monday, July 13, 1998 /Rules and Regulations 37661

bank) on becoming a member or on a

change in capital stock and surplus. The

Act requires member banks (other than

mutual savings banks) to subscribe for

Reserve Bank capital stock in an amount

equal to 6 percent of their capital stock

and surplus. Member banks are required

to pay in half this amount and half is

subject to call by the Reserve Bank.

Section 5 of the Act provides that

Federal Reserve Bank stock shall be

adjusted from time to time as member

banks increase or decrease capital stock

and surplus. The Act does not specify

whether this adjustment must be done

immediately or can be done periodically

after a number of changes in a member

bank’s capital stock and surplus have

occurred or when such changes become

in the aggregate significant. There is a

burden associated with adjusting banks’

Reserve Stock positions to reflect small

changes in the banks’ capital accounts.

The Board sought comment on how

frequently, or after how much

cumulative dollar or percentage change,

member banks should be required to

adjust their Reserve Bank capital stock

holdings.

The Board received comments on this

issue from five Reserve Banks, three

banking organizations, and a trade

association. All commenters suggested

some form of carryover.

Recommendations ranged from carrying

over changes of less than 100 shares

($5,000 of investment in Reserve Bank

stock or $166,600 of change in member

bank capital stock and surplus) to

carrying over changes of less than 25%.

One Reserve Bank suggested that the

Board carry over changes that do not

exceed either a specified dollar amount

or a percentage, on the grounds that

smaller community banks’ ownership of

Reserve Bank stock need not be changed

unless the change would amount to, say,

15 percent but larger banks would need

to change their Reserve Bank stock

positions to reflect significant dollar

amounts even though these amounts

would represent smaller percentage

changes. Several commenters suggested

a quarterly, semi-annual, or annual

adjustment either in lieu of or in

addition to adjustments occasioned by

changes in excess of the permitted

carryover. In addition, a number of

commenters suggested that member

banks be given from 30 days to six

months to make any required

adjustments. The comments also made

clear a lack of consistency in this matter

among Reserve Banks, and one

commenter urged adoption of a

consistent policy across the System.

In light of the comments and the

System’s experience, the Board has

decided in the final rule to carry over

changes within a calendar year until the

cumulative change exceeds the lesser of

15 percent or 100 shares of Reserve

Bank capital stock. Required changes

must be made promptly after filing the

call report which reflects a change in

capital stock and paid-in surplus in

excess of the amount permitted to be

deferred. In addition, every member

bank shall file to eliminate any

carryover promptly after its report of

condition as of December 31 of each

year.

The Board received no other

comments on § 209.4(a), and the final

rule otherwise adopts proposed

§ 209.4(a) as proposed. One commenter

suggested that an item be added to the

call report form showing the difference

between the amount of Reserve Bank

stock a member bank holds and three

percent of the member bank’s capital

and surplus. Since the call report form

already requires sufficient information

for the calculation, the Board is not

adopting this suggestion.

Preferred Stock, Retained Earnings,

Securities Available for Sale, and

Translation Gains and Losses

Proposed § 209.4(b) defined member

bank capital stock and surplus as capital

stock and paid-in surplus. One

commenter asked if capital stock

includes preferred stock; the Board

believes that both common stock and

preferred stock are included in the term

capital stock. A Reserve Bank suggested

utilizing ‘‘permanent capital,’’ defined

to include minority interests and

perpetual preferred stocks, but exclude

sinking fund preferred stocks, with a

view to making the definition more

consistent with definitions used

elsewhere in the Board’s Regulations.

Three commenters strongly supported

continuing to omit retained earnings

from the capital base for purposes of

Reserve Bank stock ownership

requirements, and no commenter

opposed the proposal in this regard.

The definition of capital stock and

surplus in Regulation I has always

excluded retained earnings or

undivided profits. This exclusion does

not conform to definitions used

elsewhere in the Board’s regulations.

The exclusion of retained earnings from

the definition of capital stock and

surplus minimizes member banks’

adjustments in their Reserve Bank stock

holdings. The Federal Reserve System

experienced approximately 1500

adjustments in Reserve Bank capital

stock as a result of changes in member

bank capital stock and surplus in 1992.

The Board estimates that this number

would increase substantially if it were

necessary to adjust for changes in

retained earnings of member banks.

Although retained earnings were

generally excluded from the definition,

the proposal incorporated previous

guidance requiring a deficit in retained

earnings to be subtracted from capital

stock and surplus. The proposal also

continued an exception for cases where

the deficit was relatively small and the

appropriate Reserve Bank was satisfied

that the deficit would be extinguished

by accumulation of earnings or formal

reduction of surplus, in which case the

adjustment of Reserve Bank stock might

be deferred until the end of the quarter

in which the deficit arose.

Because the final rule only requires

adjustment of member bank Reserve

Bank stock positions to reflect changes

in member bank capital as shown on the

bank’s call report as of the end of the

quarter, the provision in the proposal to

defer a deficit until the end of the

quarter in which it arose is no longer

necessary and has been deleted from the

final rule.

Two commenters raised the issue of

gains and losses on securities available

for sale, and one of them also raised the

issue of unrealized foreign exchange

losses. The Board believes that these

should be treated in the same manner as

retained earnings. Thus, in the event

that the aggregate, as shown on a

member bank’s call report as of the end

of the quarter, of its retained earnings,

gains (losses) on securities available for

sale, and foreign currency translation

gains or losses is a deficit, the deficit

should be subtracted from capital and

surplus. The amendments therefore

modify the proposal to treat this

aggregate in the same manner as the

proposal treated retained earnings.

The Board received no other specific

comments on § 209.4(b). Other than

deleting the deferral of deficits to the

end of the quarter and clarifying the

status of gains (losses) on securities

available for sale and translation

adjustments, the final rule adopts

proposed § 209.4(b) as proposed.

Savings Banks

Proposed § 209.4(c) was a condensed

version of existing § 209.4 specifying

that mutual savings banks are required

to subscribe for Reserve Bank stock in

an amount equal to 0.6 percent of total

deposits rather than 6 percent of capital

and surplus. Mutual savings banks not

permitted to hold Reserve Bank stock

are required to maintain a deposit at the

Reserve Bank in the same amount

pending a change in state law to permit

purchase of the stock. The Board

received no specific comments on this

section and, other than the carryover of
37662 Federal Register / Vol. 63, No. 133 / Monday, July 13, 1998 /Rules and Regulations

2Under sections 6 and 9(10) of the Act, a Reserve

Bank is under no obligation to pay unearned

accrued dividends on redemption of its capital

stock from an insolvent member bank for which a

receiver has been appointed or from state member

banks on voluntary withdrawal from or involuntary

termination of membership. See, e.g., former Board

Interpretation of April 17, 1925, X–4322, and

related note, formerly published in the Federal

Reserve Regulatory Service at 3–500.

adjustments not exceeding 15 percent or

100 shares discussed above, the final

rule adopts proposed § 209.4(c) as

proposed.

Accrued Dividends

Proposed §§ 209.4(d) and (e)(1)

specified that transactions in Reserve

Bank capital stock between member

banks and the Reserve Bank take place

at the subscription price plus accrued

dividends at the rate of one-half of one

percent per month (provided that the

total price paid on redemption of

Reserve Bank stock does not exceed the

book value of such stock). Under section

5 of the Act (12 U.S.C. 287), banks

applying for Reserve Bank capital stock

are required to pay the subscription

price plus accrued dividends for such

stock. Under sections 5, 6, and 9(10) of

the Act (12 U.S.C. 287, 288 and 328),

Reserve Banks redeeming their capital

stock from member banks that are in

voluntary liquidation, or which have

been declared insolvent and for which

a receiver has been appointed, or from

state member banks on voluntary

withdrawal from or involuntary

termination of membership, are required

to pay a price equal to the cash

subscription price originally paid plus

accrued dividends, but may not pay a

price exceeding the book value of the

Reserve Bank stock. The Act is silent on

whether accrued dividends are payable

by Reserve Banks in other cases such as

merger into nonmember banks. In

practice, Reserve Banks have included

accrued dividends in both purchases

and redemptions, including intra-month

accrued dividends, and the amendments

applied the concept of accrued

dividends to all transactions in Reserve

Bank capital stock.2 In cases where the

Act requires accrued dividends, it

specifies that they shall accrue at the

rate of one-half percent per month.

The Board sought comment on the

appropriate method of computing

accrued dividends. Generally the

Reserve Banks have accrued intramonth dividends on the basis of the

actual number of days elapsed within a

month divided by the number of actual

days in the month. This method results

in different daily accruals depending on

the number of days in the month for

which intra-month accrued dividends

are calculated. The Board requested

comment on whether adopting another

method, such as use of a standard 30-

day month, would simplify the

computation.

The Board received nine comments

on this issue. Three of the Reserve

Banks and all three banking

organizations that commented favored

adopting a 360 day year of twelve 30-

day months, generally citing simplicity,

general industry practice, and

consequent lack of confusion. One

Reserve Bank reported that member

banks are frequently calling for an

explanation of the method currently

used, and another pointed out that the

use of a standard 30-day month would

avoid the need to override automated

systems. Two Reserve Banks and one

trade association supported the existing

practice. The Board has adopted a 360-

day year of twelve 30-day months for

purposes of calculating accruals on

Reserve Bank stock in the final rule and

has otherwise adopted proposed

§§ 209.4(d) and (e)(1) as proposed.

Cancellation Payments

Proposed § 209.4(e)(2) specified that

in the case of any cancellation of

Reserve Bank stock under Regulation I,

the Reserve Bank may first apply the

proceeds to any liability of the member

bank to the Reserve Bank, and pay over

the remainder to the bank or receiver as

appropriate. This replaced a similar

requirement in existing § 209.5(b), and

clarified that the principle may apply to

partial as well as total cancellations.

The Board received no specific

comments on this issue and the final

rule adopts proposed § 209.4 (e)(2) as

proposed.

The Share Register

Proposed § 209.5 revised the share

register provision of the Regulation to

reflect the modern book-entry and

electronic records systems the Reserve

Banks have implemented. This change

permits eliminating the numerous

provisions of the existing Regulation

that deal with the circumstances under

which share certificates may be retained

or must be submitted for reissue.

For example, existing § 209.13(a)

requires a member bank to surrender its

certificate in the event of a change in

name and for the Reserve Bank to issue

a new certificate in the new name.

Existing § 209.5(a) includes a lengthy

footnote explaining the difference

between transfer of Reserve Bank stock

certificates by purchase and by

operation of law, because a new

certificate is not required in the case of

transfer by operation of law. Under the

proposal, the Reserve Bank in each case

need merely change the name of the

stockholder in its records.

Several of the comments that

generally supported the proposed

changes made specific favorable

reference to the change to an electronic

book-entry recordkeeping system, and

the Board received no adverse

comments on this section. The final rule

adopts proposed § 209.5 as proposed.

Final Regulatory Flexibility Analysis

The Regulatory Flexibility Act (5

U.S.C. 601–612) requires an agency to

publish a final regulatory flexibility

analysis with any notice of a final rule.

One of the requirements of a final

regulatory flexibility analysis (5 U.S.C.

604(a))—a statement of the need for, and

the objectives of, the rule—is set forth

above. The amendments require no

additional reporting or recordkeeping

requirements and do not overlap with

other federal rules.

A second requirement for the final

regulatory flexibility analysis is a

summary of the issues raised by the

public comments in response to the

initial regulatory flexibility analysis

included in the notice of proposed

rulemaking. The Board received no

comments specifically related to the

initial regulatory flexibility analysis.

The third requirement for the final

regulatory flexibility analysis is a

description of any significant

alternatives to the rule consistent with

the stated objectives of the applicable

statutes and designed to minimize any

significant impact of the rule on small

entities. The rule will apply to all

member banks regardless of size.

The amendments are burdenreducing. Therefore, the Board believes

that the amendments will not have a

significant adverse economic impact on

a substantial number of small entities.

Paperwork Reduction Act

The rule contains no collections of

information pursuant to the Paperwork

Reduction Act of 1995 (44 U.S.C. Ch.

3506; 5 CFR Part 1320, Appendix A.1).

List of Subjects in 12 CFR Part 209

Banks and banking, Federal Reserve

System, Reporting and recordkeeping

requirements, Securities.

Authority and Issuance

For the reasons set forth in the

preamble, the Board revises part 209 of

chapter II of title 12 to read as follows:
Federal Register / Vol. 63, No. 133 / Monday, July 13, 1998 /Rules and Regulations 37663

1 If such a bank desires to become a member bank

under the provisions of § 19(h) of the Federal

Reserve Act, it should communicate with the

Federal Reserve Bank with which it desires to do

business.

2A new national bank organized by the Federal

Deposit Insurance Corporation under § 11(n) of the

Federal Deposit Insurance Act (12 U.S.C. 1821(n))

should not apply until in the process of issuing

stock pursuant to § 11(n)(15) of that act. Reserve

Bank approval of such an application shall not be

effective until the issuance of a certificate by the

Comptroller of the Currency pursuant to § 11(n)(16)

of that act.

3A mutual savings bank not authorized to

purchase Federal Reserve Bank stock may apply for

membership evidenced initially by a deposit. (See

§ 208.3(a) of Regulation H, 12 CFR part 208.) The

membership of the savings bank shall be terminated

if the laws under which it is organized are not

amended to authorize such purchase at the first

session of the legislature after its admission, or if

it fails to purchase such stock within six months

after such an amendment.

PART 209—ISSUE AND

CANCELLATION OF FEDERAL

RESERVE BANK CAPITAL STOCK

(REGULATION I)

Sec.

209.1 Authority, purpose, and scope.

209.2 Banks desiring to become member

banks.

209.3 Cancellation of Reserve Bank stock.

209.4 Amounts and payments.

209.5 The share register.

Authority: 12 U.S.C. 222, 248, 282, 286–

288, 321, 323, 327–328, 333, 466.

§ 209.1 Authority, purpose, and scope.

(a) Authority. This part is issued

pursuant to 12 U.S.C. 222, 248, 282,

286–288, 321, 323, 327–328, and 466.

(b) Purpose. The purpose of this part

is to implement the provisions of the

Federal Reserve Act relating to the

issuance and cancellation of Federal

Reserve Bank stock upon becoming or

ceasing to be a member bank, or upon

changes in the capital and surplus of a

member bank, of the Federal Reserve

System.

(c) Scope. This part applies to

member banks of the Federal Reserve

System, to national banks in process of

organization, and to state banks

applying for membership. National

banks and locally-incorporated banks

located in United States dependencies

and possessions are eligible (with the

consent of the Board) but not required

to apply for membership under section

19(h) of the Federal Reserve Act, 12

U.S.C. 466.1

§ 209.2 Banks desiring to become member

banks.

(a) Application for stock or deposit.

Each national bank in process of

organization,2 each nonmember state

bank converting into a national bank,

and each nonmember state bank

applying for membership in the Federal

Reserve System under Regulation H, 12

CFR part 208, shall file with the Federal

Reserve Bank (Reserve Bank) in whose

district it is located an application for

stock (or deposit in the case of mutual

savings banks not authorized to

purchase Reserve Bank stock 3) in the

Reserve Bank. The bank shall pay for

the stock (or deposit) in accordance

with § 209.4 of this regulation.

(b) Issuance of stock; acceptance of

deposit. Upon authorization to

commence business by the Comptroller

of the Currency in the case of a national

bank in organization or upon approval

of conversion by the Comptroller of the

Currency in the case of a state

nonmember bank converting to a

national bank, or when all applicable

requirements have been complied with

in the case of a state bank approved for

membership, the Reserve Bank shall

issue the appropriate number of shares

by crediting the bank with the

appropriate number of shares on its

books. In the case of a national or state

member bank in organization, such

issuance shall be as of the date the bank

opens for business. In the case of a

mutual savings bank not authorized to

purchase Reserve Bank shares, the

Reserve Bank shall accept the deposit in

place of issuing shares. The bank’s

membership shall become effective on

the date of such issuance or acceptance.

(c) Location of bank. (1) General rule.

For purposes of this part, a national

bank or a state bank is located in the

Federal Reserve District that contains

the location specified in the bank’s

charter or organizing certificate, or, if no

such location is specified, the location

of its head office, unless otherwise

determined by the Board under

paragraph (c)(2) of this section.

(2) Board determination. If the

location of a bank as specified in

paragraph (c)(1) of this section, in the

judgment of the Board of Governors of

the Federal Reserve System (Board), is

ambiguous, would impede the ability of

the Board or the Reserve Banks to

perform their functions under the

Federal Reserve Act, or would impede

the ability of the bank to operate

efficiently, the Board will determine the

Federal Reserve District in which the

bank is located, after consultation with

the bank and the relevant Reserve

Banks. The relevant Reserve Banks are

the Reserve Bank whose District

contains the location specified in

paragraph (c)(1) of this section and the

Reserve Bank in whose District the bank

is proposed to be located. In making this

determination, the Board will consider

any applicable laws, the business needs

of the bank, the location of the bank’s

head office, the locations where the

bank performs its business, and the

locations that would allow the bank, the

Board, and the Reserve Banks to

perform their functions efficiently and

effectively.

§ 209.3 Cancellation of Reserve Bank

stock.

(a) Application for cancellation. Any

bank that desires to withdraw from

membership in the Federal Reserve

System, voluntarily liquidates or ceases

business, is merged or consolidated into

a nonmember bank, or is involuntarily

liquidated by a receiver or conservator

or otherwise, shall promptly file with its

Reserve Bank an application for

cancellation of all its Reserve Bank

stock (or withdrawal of its deposit, as

the case may be) and payment therefor

in accordance with § 209.4.

(b) Involuntary termination of

membership. If an application is not

filed promptly after a cessation of

business by a state member bank, a vote

to place a member bank in voluntary

liquidation, or the appointment of a

receiver for (or a determination to

liquidate the bank by a conservator of)

a member bank, the Board may, after

notice and an opportunity for hearing

where required under Section 9(9) of the

Federal Reserve Act (12 U.S.C. 327),

order the membership of the bank

terminated and all of its Reserve Bank

stock canceled.

(c) Effective date of cancellation.

Cancellation in whole of a bank’s

Reserve Bank capital stock shall be

effective, in the case of:

(1) Voluntary withdrawal from

membership by a state bank, as of the

date of such withdrawal;

(2) Merger into, consolidation with, or

(for a national bank) conversion into, a

State nonmember bank, as of the

effective date of the merger,

consolidation, or conversion; and

(3) Involuntary termination of

membership, as of the date the Board

issues the order of termination.

(d) Exchange of stock on merger or

change in location. (1) Merger of

member banks in the same Federal

Reserve District. Upon a merger or

consolidation of member banks located

in the same Federal Reserve District, the

Reserve Bank shall cancel the shares of

the nonsurviving bank (or in the case of

a mutual savings bank not authorized to

purchase Reserve Bank stock, shall

credit the deposit to the account of the

surviving bank) and shall credit the

appropriate number of shares on its

books to (or in the case of a mutual

savings bank not authorized to purchase

Reserve Bank stock, shall accept an

appropriate increase in the deposit of)
37664 Federal Register / Vol. 63, No. 133 / Monday, July 13, 1998 /Rules and Regulations

4Capital stock includes common stock and

preferred stock (including sinking fund preferred

stock).

5Under sections 6 and 9(10) of the Act, a Reserve

Bank is under no obligation to pay unearned

accrued dividends on redemption of its capital

stock from an insolvent member bank for which a

receiver has been appointed or from state member

banks on voluntary withdrawal from or involuntary

termination of membership.

the surviving bank, subject to paragraph

(e)(2) of § 209.4.

(2) Change of location or merger of

member banks in different Federal

Reserve Districts. Upon a determination

under paragraph (c)(2) of § 209.2 that a

member bank is located in a Federal

Reserve District other than the District

of the Reserve Bank of which it is a

member, or upon a merger or

consolidation of member banks located

in different Federal Reserve Districts,—

(i) The Reserve Bank of the member

bank’s former District, or of the

nonsurviving member bank, shall cancel

the bank’s shares and transfer the

amount paid in for those shares, plus

accrued dividends (at the rate specified

in paragraph (d) of § 209.4) and subject

to paragraph (e)(2) of § 209.4 (or, in the

case of a mutual savings bank member

not authorized to purchase Federal

Reserve Bank stock, the amount of its

deposit, adjusted in a like manner), to

the Reserve Bank of the bank’s new

District or of the surviving bank; and (ii)

The Reserve Bank of the member bank’s

new District or of the surviving bank

shall issue the appropriate number of

shares by crediting the bank with the

appropriate number of shares on its

books (or, in the case of a mutual

savings bank, by accepting the deposit

or an appropriate increase in the

deposit).

(e) Voluntary withdrawal. Any bank

withdrawing voluntarily from

membership shall give 6 months written

notice, and shall not cause the

withdrawal of more than 25 percent of

any Reserve Bank’s capital stock in any

calendar year, unless the Board waives

these requirements.

§ 209.4 Amounts and payments.

(a) Amount of subscription. The total

subscription of a member bank (other

than a mutual savings bank) shall equal

six percent of its capital and surplus.

Whenever any member bank (other than

a mutual savings bank) experiences a

cumulative increase or decrease in

capital and surplus requiring a change

in excess of the lesser of 15 percent or

100 shares of its Reserve Bank capital

stock, it shall file with the appropriate

Reserve Bank an application for issue or

cancellation of Reserve Bank capital

stock in order to adjust its Reserve Bank

capital stock subscription to equal six

percent of the member bank’s capital

and surplus. Such application shall be

filed promptly after the first report of

condition that reflects the increase or

decrease occasioning the adjustment. In

addition, every member bank shall file

an application for issue or cancellation

of Reserve Bank capital stock if needed

in order to adjust its Reserve Bank

capital stock subscription to equal six

percent of the member bank’s capital

and surplus as shown on its report of

condition as of December 31 of each

year promptly after filing such report.

(b) Capital Stock and Surplus defined.

Capital stock and surplus of a member

bank means the paid-in capital stock 4

and paid-in surplus of the bank, less any

deficit in the aggregate of its retained

earnings, gains (losses) on available for

sale securities, and foreign currency

translation accounts, all as shown on

the bank’s most recent report of

condition. Paid-in capital stock and

paid-in surplus of a bank in

organization means the amount which is

to be paid in at the time the bank

commences business.

(c) Mutual savings banks. The total

subscription of a member bank that is a

mutual savings bank shall equal sixtenths of 1 percent of its total deposit

liabilities as shown on its most recent

report of condition. Whenever any

member bank that is a mutual savings

bank experiences a cumulative increase

or decrease in total deposit liabilities as

shown on its most recent report of

condition requiring a change in its

holding of Reserve Bank stock in excess

of the lesser of 15 percent or 100 shares,

it shall file with the appropriate Reserve

Bank an application for issue or

cancellation of Reserve Bank capital

stock in order to adjust its Reserve Bank

capital stock subscription to equal sixtenths of 1 percent of the member bank’s

total deposit liabilities. Such

application shall be filed promptly after

the first report of condition that reflects

the increase or decrease occasioning the

adjustment. In addition, every member

bank that is a mutual savings bank shall

file an application for issue or

cancellation of Reserve Bank capital

stock if needed in order to adjust its

Reserve Bank capital stock subscription

to equal six-tenths of 1 percent of its

total deposit liabilities as shown on its

report of condition as of December 31 of

each year promptly after filing such

report. A mutual savings bank that is

applying for or has a deposit with the

appropriate Reserve Bank in lieu of

Reserve Bank capital stock shall file for

acceptance or adjustment of its deposit

in a like manner.

(d) Payment for subscriptions. Upon

approval by the Reserve Bank of an

application for capital stock (or for a

deposit in lieu thereof), the applying

bank shall pay the Reserve Bank onehalf of the subscription amount plus

accrued dividends. For purposes of this

part, dividends shall accrue at the rate

of one half of one percent per month

calculated on the basis of a 360-day year

of twelve 30-day months. Upon

payment (and in the case of a national

banks in organization or state

nonmember bank converting into a

national bank, upon authorization or

approval by the Comptroller of the

Currency), the Reserve Bank shall issue

the appropriate number of shares by

crediting the bank with the appropriate

number of shares on its books. In the

case of a mutual savings bank not

authorized to purchase Reserve Bank

stock, the Reserve Bank will accept the

deposit or addition to the deposit in

place of issuing shares. The remaining

half of the subscription or additional

subscription (including subscriptions

for deposits or additions to deposits)

shall be subject to call by the Board.

(e) Payment for cancellations. (1)

Upon approval of an application for

cancellation of Reserve Bank capital

stock, or (in the case of involuntary

termination of membership) upon the

effective date of cancellation specified

in § 209.3(c)(3), the Reserve Bank shall

reduce the bank’s shareholding on the

Reserve Bank’s books by the number of

shares required to be canceled and shall

pay therefor a sum equal to the cash

subscription paid on the canceled stock

plus accrued dividends (at the rate

specified in paragraph (d) of this

section), such sum not to exceed the

book value of the stock.5

(2) In the case of any cancellation of

Reserve Bank stock under this Part, the

Reserve Bank may first apply such sum

to any liability of the bank to the

Reserve Bank and pay over the

remainder to the bank (or receiver or

conservator, as appropriate).

§ 209.5 The share register.

(a) Electronic or written record. A

member bank’s holding of Reserve Bank

capital stock shall be represented by one

(or at the option of the Reserve Bank,

more than one) notation on the Reserve

Bank’s books. Such books may be

electronic or in writing. Upon any issue

or cancellation of Reserve Bank capital

stock, the Reserve Bank shall record the

member bank’s new share position in its

books (or eliminate the bank’s share

position from its books, as the case may

be).

(b) Certification. A Reserve Bank may

certify on request as to the number of
Federal Register / Vol. 63, No. 133 / Monday, July 13, 1998 /Rules and Regulations 37665

shares held by a member bank and

purchased before March 28, 1942, or as

to the purchase and cancellation dates

and prices of shares cancelled, as the

case may be.

By order of the Board of Governors of the

Federal Reserve System, July 6, 1998.

Jennifer J. Johnson,

Secretary of the Board.

[FR Doc. 98–18275 Filed 7–10–98; 8:45 am]

BILLING CODE 6210–01–P

FEDERAL RESERVE SYSTEM

12 CFR Part 216

[Regulation P; Docket No. R–0965]

Security Procedures

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Final rule.

SUMMARY: The Board is rescinding

Regulation P, which is no longer

necessary since its provisions have been

incorporated into Regulation H

(Membership of State Banking

Institutions in the Federal Reserve

System), as issued by the Board

elsewhere in today’s Federal Register.

Regulation P requires each bank to

adopt appropriate security procedures.

EFFECTIVE DATE: October 1, 1998.

FOR FURTHER INFORMATION CONTACT: Jean

Anderson, Staff Attorney, Legal Division

(202/452–3707). For the hearing

impaired only, Telecommunications

Device for the Deaf (TDD), Diane Jenkins

(202/452–3544).

SUPPLEMENTARY INFORMATION: Section

303(a) of the Riegle Community

Development and Regulatory

Improvement Act of 1994 (12 U.S.C.

4803(a)) requires the Board, as well as

the other federal banking agencies, to

review its regulations and written

policies in order to streamline and

modify these regulations and policies to

improve efficiency, reduce unnecessary

costs, and eliminate unwarranted

constraints on credit availability. The

Board reviewed its Regulation P with

this purpose in mind and has adopted

its proposal to rescind Regulation P in

order to meet the goals of section 303(a).

Regulation P implements the

requirements of the Bank Protection Act

of 1968 (BPA). The BPA requires the

federal financial institution supervisory

agencies to establish minimum

standards for bank security devices and

procedures to discourage bank crime

and to assist in the identification of

persons who commit such crimes. 12

U.S.C. 1882. To implement this statute

a uniform regulation (Regulation P) was

adopted in 1969 by each of the

supervisory agencies—Comptroller of

the Currency, Federal Deposit Insurance

Corporation, Federal Home Loan Bank

Board (now known as the Office of

Thrift Supervision), and the Board. As

originally proposed, Regulation P

included a list of security devices that

banks were required to adopt. On March

1, 1991, (55 FR 13069) (1991

Amendments), the supervisory agencies

amended their rules to incorporate

amendments made to the BPA by the

Financial Institutions Reform Recovery

and Enforcement Act of 1989 (FIRREA)

and to address the fact that many of the

required security devices had been

rendered obsolete by virtue of

technological advances.

Discussion

The Board’s action to rescind

Regulation P and incorporate its

provisions into Regulation H (12 CFR

part 208—Membership of State Banking

Institutions in the Federal Reserve

System) as published elsewhere in

today’s Federal Register, would not

substantively change the requirements

of Regulation P. The Board’s action to

incorporate Regulation P into

Regulation H is designed to simplify

compliance for State member banks by

consolidating regulatory requirements

applying to State member banks into

one regulation.

The Board published its proposal to

rescind Regulation P for comment in the

Federal Register on March 31, 1997 (61

FR 15299). The Board received 4

comments on the proposal from the

following types of institutions:

Trade associations—2

Federal Reserve Banks—2

Three of the 4 comments received

generally supported, or did not object

to, rescinding Regulation P. However,

one commenter opposed incorporating

Regulation P into Regulation H on the

basis that Regulation H relates solely to

state member banks and Regulation P

addresses security procedures for both

state member banks and Federal Reserve

Banks. Despite this concern the Board is

rescinding Regulation P and

incorporating it into Regulation H as

proposed because it believes that the

Federal Reserve Banks are well aware of

the requirements of Regulation P.

Regulatory Flexibility Act Analysis

Pursuant to section 605(b) of the

Regulatory Flexibility Act (Pub. L. 95–

354, 5 U.S.C. 601 et seq.), the Board of

Governors of the Federal Reserve

System certifies that adoption of this

proposal will not have a significant

economic impact on a substantial

number of small entities that would be

subject to the regulation.

This amendment will remove a

regulation and an interpretation that the

Board believes are no longer necessary.

The amendment does not impose more

burdensome requirements on bank

holding companies than are currently

applicable.

Paperwork Reduction Act

In accordance with the Paperwork

Reduction Act of 1995 (44 U.S.C. 3506;

5 CFR 1320 Appendix A.1), the Board

reviewed the rule under the authority

delegated to the Board by the Office of

Management and Budget. No collections

of information pursuant to the

Paperwork Reduction Act are contained

in the final rule.

List of Subjects in 12 CFR Part 216

Federal Reserve System, Reporting

and recordkeeping requirements,

Security measures.

For the reasons set forth in the

preamble and under the authority of 12

U.S.C. 1882, the Board is amending 12

CFR chapter II, as set forth below:

PART 216—[REMOVED]

1. Part 216 is removed.

By order of the Board of Governors of the

Federal Reserve System, July 6, 1998.

Jennifer J. Johnson,

Secretary of the Board.

[FR Doc. 98–18276 Filed 7–10–98; 8:45 am]

BILLING CODE 6210–01–P